By Myra P. Saefong
Japan's lithium-ion battery sector dominates the world market,
and analysts say that limited competition, lack of market
alternatives and growing demand are set to drive hefty gains for
battery-material producers over at least the next 10 years.
According to estimates from analysts at Macquarie Research,
Japan's battery-material market will grow to a 1 trillion yen
($10.6 billion) market by 2020 from a 200 billion yen market in
2008, due mainly to auto-related demand.
The analysts also predict that the market for lithium
hexfluorophosphate, also known as LiPF6 -- a crucial chemical
element used to make an electrolyte for lithium-ion batteries --
will grow to 50 billion yen in 2020 from 10 billion yen in
2008.
Macquarie initiated coverage on two lithium-ion battery
electrolyte makers in particular last week -- Stella Chemifa Corp.
and Kanto Denka Kogyo Co. .
The two companies have 40% each of the market for lithium
hexfluorophosphate, the analysts said in a research note to
clients.
"We believe their superior product quality means they will have
a higher share in the auto-related battery market," they said. Both
Stella and KDK are "an excellent way to gain profitable,
unthreatened exposure to the growing lithium-ion battery
market."
In Tokyo's afternoon trading session, shares of Stella Chemifa
were down 1.1% while those of KDK were up 2.3%. The value of both
companies' stock has more than doubled in the past year, according
to data from FactSet Research.
In broader regional trading, Japan's Nikkei 225 Average and
Topix were each down 0.4% and South Korea's Kospi shed 0.1%. The
Shanghai Composite tacked on 0.2%, Taiwan's Taiex added 1.1% and
Sydney's S&P/ASX 200 rose 0.9%. Hong Kong was closed for a
holiday.
Production dilemma
Material costs for the production of lithium-ion batteries have
been a key concern for the market, but as demand for the batteries
in consumer electronics and the auto sector has grown, battery
makers have an improved incentive to work on cutting battery
pricing.
"We estimate that the biggest cost-reduction potential is in
fixed costs and manufacturing, not materials," analysts at
Macquarie said.
And "our checks with material makers suggest that the industry
consensus is that battery makers must address manufacturing and
production costs (still 50% of overall battery cost) before they
are in a position to demand price cuts from material makers," they
said.
Battery makers may focus on reducing costs of cathodes by
designing out the expensive cobalt element, they said.
And some already have. Hitachi Ltd. (HIT) said Monday that it
developed a material that can double the life of lithium-ion
batteries, according to a report Tuesday in the Nikkei business
daily.
The new battery will use manganese in its positive electrode,
which will reduce use of the rare metal cobalt, the report
said.
Hitachi will also use a metal additive in the new battery which
will extend the battery's life to more than 10 years, double that
of existing manganese lithium-ion batteries.
Hitachi will team up with Shin-Kobe Electric Machinery Co. to
complete prototypes of a new battery and peripheral equipment as
early as fiscal 2010, the report said.
Shares of Hitachi fell 1.6%, though the stock is up around 60%
from its lows in December after having gained 13% in just over a
week.
Auto drive
Reductions in material and manufacturing costs are particularly
important, given that the auto production will be a major catalyst
for lithium-ion demand.
Macquarie analysts expect auto ramp-up to be significant by the
calendar year 2015, with auto-related demand for the batteries to
account for half the market by calendar year 2018.
Demand from electric vehicles will be the "real kicker," they
said. These will depend entirely on electricity, so the amount of
battery capacity required is "significantly higher than other end
uses" for lithium-ion batteries, they said.
At the same time, the market will continued to see limited
competition.
"There is unlikely to be a serious competitor in the next five
years, given the expertise needed to achieve existing quality
levels" for LIPF6, analysts at Macquarie said.
"Stella and KDK both claim that reaching commercialization at
current product quality levels required more than 10 years of
R&D," they said.
And there is "no viable, commercial substitute for LiPF6 when
producing Li-ion batteries."